Highlights
- Prediction market platform Kalshi has secured a preliminary injunction against the New Jersey Division of Gaming Enforcement preventing the state from enforcing a cease-and-desist order that aimed to halt Kalshi’s operations within New Jersey.
- This legal action underscores the complex interplay between state and federal regulations in the realm of prediction markets.
- Though the ruling does not resolve the underlying legal issues, it marks yet another development for Kalshi and could serve as precedent for other federally regulated platforms confronting similar scrutiny.
Prediction market platform Kalshi has secured a preliminary injunction against the New Jersey Division of Gaming Enforcement (the Division), preventing the state from enforcing a cease-and-desist order that aimed to halt Kalshi’s operations within New Jersey. This legal action underscores the complex interplay between state and federal regulations in the realm of prediction markets.
Background
Kalshi is a financial services company that operates a derivatives exchange and prediction market. It is registered with the Commodity Futures Trading Commission (CFTC) as a Designated Contract Market (DCM), operating a federally regulated exchange where users trade contracts based on the outcomes of real-world events. Although Kalshi markets these products as financial instruments governed by the Commodity Exchange Act, some state regulators view them as a form of gambling, subject to state law.
In March 2025, the Division issued a cease-and-desist letter ordering Kalshi to cease its operations in the state, alleging that the platform’s offerings constitute illegal gambling in violation of both the New Jersey Sports Wagering Act and New Jersey Constitution. In response, Kalshi filed suit in the U.S. District Court for the District of New Jersey, arguing that federal law preempts state enforcement efforts and that New Jersey’s actions violate the Supremacy Clause.
The Court’s Decision
On April 28, 2025, the court found that Kalshi raised serious constitutional questions and demonstrated a likelihood of success and irreparable harm absent judicial intervention, and it enjoined the Division “from pursuing civil or criminal enforcement actions against Kalshi concerning its sports-related event contracts.”
Notably, the court emphasized the tension between the state’s interpretation of gambling laws and Kalshi’s operation under federal regulatory approval. The court did, however, impose a $100,000 bond that was “intended to mirror that of the maximum fine of a violation [the Division could impose] under the New Jersey Sports Wagering Act.”
Though the ruling does not resolve the underlying legal issues, it marks yet another development for Kalshi and could serve as precedent for other federally regulated platforms confronting similar scrutiny.
A Landscape in Flux: Federal and State Tensions Grow
The Kalshi-New Jersey dispute is just one front in a broader jurisdictional battle. Kalshi is also embroiled in high-stakes litigation against the CFTC itself, challenging the agency’s rejection of its proposed contracts related to U.S. elections. Although a district court upheld the CFTC’s denial in late 2023, Kalshi has appealed that ruling to the U.S. Court of Appeals for the District of Columbia Circuit, where the case remains pending. For more information about election and sports event contracts, see Holland & Knight’s previous alert, “Election Contracts and Sports Event Contracts: The Future of Regulated Event-Based Trading,” Feb. 11, 2025.
Adding to the uncertainty, the CFTC abruptly canceled a much-anticipated public roundtable on the regulation of event contracts that was scheduled for April 30, 2025. The cancellation has raised further questions within the industry about CFTC’s direction and openness to stakeholder input on prediction markets.
Kalshi Expands Legal Battle to Maryland
In a parallel development, Kalshi has initiated legal action against the Maryland Lottery and Gaming Control Commission following a cease-and-desist order similar to New Jersey’s. Maryland authorities allege that Kalshi’s event-based contracts violate state gambling laws. Kalshi contends that its operations fall under federal jurisdiction as a CFTC-regulated exchange and argues that Maryland’s enforcement actions are preempted by federal law.
This marks Kalshi’s third lawsuit against a state-level authority – having prevailed in Nevada by securing a preliminary injunction on April 9, 2025, against the Nevada Gaming Commission – highlighting the company’s broader strategy to litigate its federal regulatory status across multiple jurisdictions.
In the absence of formal rulemaking or clear guidance from the CFTC, market participants are left to navigate an evolving legal landscape where both federal and state authorities assert overlapping – and sometimes conflicting – jurisdiction.
Implications for the Gaming Industry
For gaming operators, sportsbooks, financial technology (FinTech) companies and prediction market platforms, the Kalshi litigation underscores several key takeaways:
- Preemption is Not Automatic. CFTC regulation provides a critical layer of federal authority, but it may not insulate platforms from state-level enforcement actions, particularly in jurisdictions with expansive definitions of gambling.
- Multi-Forum Litigation Risk Is Real. Platforms operating in this space must be prepared to defend their business models simultaneously in state courts, federal trial courts and before state and federal regulators.
- Unsettled Law and Policy. With the CFTC retreating from public engagement on these issues and key appeals pending, legal certainty remains elusive for operators seeking to structure novel event-based products.
- Preliminary Injunctions Do Not Resolve the Merits. Although Kalshi has obtained injunctive relief, these early rulings address only immediate harm and likelihood of success – not final adjudication. Courts may reach different conclusions as the cases advance.
Looking Ahead
Kalshi’s wins in New Jersey and Nevada are far from the final word. As litigation continues in multiple jurisdictions – including the pivotal appeal in its challenge against the CFTC – market participants should proceed with caution.
Until clearer lines are drawn between permissible financial instruments and impermissible gambling contracts, businesses offering event-based products must invest in robust legal analysis, stay alert to shifting regulatory signals and be ready to litigate jurisdictional boundaries when challenged.
If you have questions about how these developments may affect your business or need assistance navigating and exploring the evolving regulatory landscape and the complex intersection of gaming law, commodities regulation and emerging FinTech issues, please contact the author or another member of Holland & Knight’s Gaming Practice.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.
s just one front in a broader jurisdictional battle. Kalshi is also embroiled in high-stakes litigation against the CFTC itself, challenging the agency’s rejection of its proposed contracts related to U.S. elections. Although a district court upheld the CFTC’s denial in late 2023, Kalshi has appealed that ruling to the U.S. Court of Appeals for the District of Columbia Circuit, where the case remains pending. For more information about election and sports event contracts, see Holland & Knight’s previous alert, “Election Contracts and Sports Event Contracts: The Future of Regulated Event-Based Trading,” Feb. 11, 2025.
Adding to the uncertainty, the CFTC abruptly canceled a much-anticipated public roundtable on the regulation of event contracts that was scheduled for April 30, 2025. The cancellation has raised further questions within the industry about CFTC’s direction and openness to stakeholder input on prediction markets.
Kalshi Expands Legal Battle to Maryland
In a parallel development, Kalshi has initiated legal action against the Maryland Lottery and Gaming Control Commission following a cease-and-desist order similar to New Jersey’s. Maryland authorities allege that Kalshi’s event-based contracts violate state gambling laws. Kalshi contends that its operations fall under federal jurisdiction as a CFTC-regulated exchange and argues that Maryland’s enforcement actions are preempted by federal law.
This marks Kalshi’s third lawsuit against a state-level authority – having prevailed in Nevada by securing a preliminary injunction on April 9, 2025, against the Nevada Gaming Commission – highlighting the company’s broader strategy to litigate its federal regulatory status across multiple jurisdictions.
In the absence of formal rulemaking or clear guidance from the CFTC, market participants are left to navigate an evolving legal landscape where both federal and state authorities assert overlapping – and sometimes conflicting – jurisdiction.
Implications for the Gaming Industry
For gaming operators, sportsbooks, financial technology (FinTech) companies and prediction market platforms, the Kalshi litigation underscores several key takeaways:
- Preemption is Not Automatic. CFTC regulation provides a critical layer of federal authority, but it may not insulate platforms from state-level enforcement actions, particularly in jurisdictions with expansive definitions of gambling.
- Multi-Forum Litigation Risk Is Real. Platforms operating in this space must be prepared to defend their business models simultaneously in state courts, federal trial courts and before state and federal regulators.
- Unsettled Law and Policy. With the CFTC retreating from public engagement on these issues and key appeals pending, legal certainty remains elusive for operators seeking to structure novel event-based products.
- Preliminary Injunctions Do Not Resolve the Merits. Although Kalshi has obtained injunctive relief, these early rulings address only immediate harm and likelihood of success – not final adjudication. Courts may reach different conclusions as the cases advance.
Looking Ahead
Kalshi’s wins in New Jersey and Nevada are far from the final word. As litigation continues in multiple jurisdictions – including the pivotal appeal in its challenge against the CFTC – market participants should proceed with caution.
Until clearer lines are drawn between permissible financial instruments and impermissible gambling contracts, businesses offering event-based products must invest in robust legal analysis, stay alert to shifting regulatory signals and be ready to litigate jurisdictional boundaries when challenged.
If you have questions about how these developments may affect your business or need assistance navigating and exploring the evolving regulatory landscape and the complex intersection of gaming law, commodities regulation and emerging FinTech issues, please contact the author or another member of Holland & Knight’s Gaming Practice.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.
